|Taxes and Insurance :||$0.00||$22,500.00|
|Total PMI :||$0.00||$3,229.17|
|Total Maintenance :||$0.00||$4,500.00|
|Total Payments :||$51,996.70||$110,752.41|
|Average Monthly Payment :||$866.61||$1,845.87|
|Monthly Rent Savings :||$979.26|
|Tax Savings :||$0.00||$4,550.00|
|Total Rent Savings :||$54,205.71|
|House Appreciation Value :||$382,884.47|
|Proceeds Minus Costs :||$356,082.56|
|Loan Balance :||$229,571.83|
|Equity Appreciation :||$126,510.73|
|Home Purchase Benefits :||$72,305.01|
Is it financially better to buy a home or to rent? The answer to this question depends upon how much the home costs, how much you are paying for rent, and how much you will have to pay each year in order to maintain your home.
If you were to pay $800.00 per month, for example, and the average rental payment increase was 4.000%, you would pay $51,996.70 in a 5 year period toward rent. If you purchased a home and borrowed $250,000.00 with a 5.000% interest rate, and you paid $900.00 every year toward its maintenance, you would pay $110,752.41 in a 5 year period toward mortgage payments if your Federal tax rate is 26.000%, you pay $3,000.00 in taxes each year and your annual insurance rate is $1,500.00.
When you consider your tax benefits and the appreciation of your home, however, you will actually SAVE money by purchasing a home. If your home shows an annual appreciation of 5.000% and your selling cost is 7.000%, your house appreciation value will be $382,884.47. As a result, your total home purchase benefit will amount to $72,305.01.
Conventional wisdom says that it's better to buy a home. Otherwise, you're just “wasting money” on rent that you could be putting toward building equity in your home and shoring up an investment that can stay with you until you retire.
However, from a purely economical standpoint, deciding whether to buy or rent a home may not always be so black and white. Your current financial circumstances and the state of the current housing market both play a big role in determining what is the right choice for you.
Of course, one of the biggest advantages of buying a home is that you can build equity. There is no guarantee for home appreciation, since the unique qualities of the property and the neighborhood and city where it is located will have a big influence on its value, but most real estate experts agree that the average rate of appreciation is about 3 to 4 percent per year.
You could be one of the unlucky ones whose property nosedives in value, but on average, you can expect your home to only increase in value over the years.
If you decide you want to add on to your home or knock down a wall, owning the property allows you to customize the home to better fit your needs and wants.
Another advantage of buying a home is that you can deduct your home mortgage interest. Since you are likely to pay several thousand dollars in mortgage interest over the course of the year, this can add up to a significant savings at the end of the year.
Finally, buying a home offers you the advantage of a fixed monthly payment (assuming you chose a fixed-rate mortgage rather than an adjustable-rate mortgage). When you rent a place, your landlord could increase your monthly rent each year.
To make buying real estate worth it, you need to be somewhat stable in both your finances and your life. If you know that you don't plan to stay in the area for at least five or six years, buying may end up costing you much more in the long run. If you try to sell your home before five or six years (or more, depending on the terms of your loan), you may not recoup all your expenses, including your down payment, closing costs and Realtor commission fees.
Owning a home can also be unpredictable. The roof may spring a leak. The water heater may break. The heating system may need to be replaced. Termites may infect the wood. The septic tank may fail. These are all costly repairs. And then there are acts of nature which require insurance to protect against.
When you rent, your landlord is responsible for making repairs & insuring the property. When you own a home, you have to make them, and they can occur at any time and without any warning. You could find yourself thousands of dollars in debt — or living in a cold, damp house. When buying a condo the homeowner is still responsible for most of these types of repairs & must pay HOA dues.
Your property taxes and insurance could also increase from year to year with little notice.
Finally, the real estate market itself can be unpredictable. When you buy your home, it may be a boom year. However, by the time you are ready to sell, home prices may have dropped dramatically, making it difficult, if not impossible, for you to sell or to sell at a profit.
Ultimately, only you can decide whether renting or buying is the right choice for you. However, the above calculator can help you run the numbers to get a strictly economical analysis to help you decide. You'll have to decide the value of being the owner of your own space and having the freedom to make the home your own.
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